S&P Picks and Pans: Anadarko, Legg Mason, Ciena, National Semi
S&P DOWNGRADES SHARES OF ANADARKO PETROLEUM TO HOLD FROM BUY, ON VALUATION (APC; 63.65):
Rising oil and natural gas prices boosted shares of exploration and production companies in February. As a result, APC shares rose about 7%, and we now view the shares as fairly valued. Using our revised oil and gas price and cost projections, we are raising our 2008 EPS estimate by $1.02 to $4.64, but trim our 2009 estimate by $0.92 to $3.92, and see 2010 at $5.42. Blending our discounted cash flow (DCF) and relative valuations, we are raising our target price by 5 to 72 per share, representing an expected enterprise value of 5.7 times our 2008 EBITDA estimate, a discount to peers. -T.Vital
S&P DOWNGRADES OPINION ON SHARES OF LEGG MASON TO HOLD FROM BUY (LM; 63.32):
LM has arranged a line of credit to support a liquidity fund with Structured Investment Vehicle exposure, but has also accrued a $0.42 charge so far in March-quarter related to SIV markdowns. We do not expect any of its funds to "break the buck," but we think these continuing struggles, combined with tough markets and recent fund underperformance, will continue to adversely affect fund flows and average asset balances. We are lowering our fiscal year 2008 (March) EPS estimates to $4.36 and cutting our target price by 15 to 70, 14.3 times our fiscal year 2009 estimate of $4.90, cut today from $5.43, below peers.- M.Albrecht
S&P REITERATES BUY OPINION ON SHARES OF CIENA NETWORKS (CIEN; 27.61):
Before special items, Ciena posts January-quarter EPS of $0.41 vs. $0.22, above our $0.33 estimate on 5% sequential sales growth from October-quarter, strong gross margin, and higher-than-expected interest income. We believe customers will continue to spend on Ciena's optical products even in a slower economy, reflecting a need to support a continued rise in network bandwidth. Using revised peer valuation multiples, which have fallen recently, we are lowering our 12-month target price by 4 to 36. Still, we see Cienas growth profile as among the best in the industry and view shares as attractive. -A.Bensinger
S&P MAINTAINS HOLD OPINION ON SHARES OF NATIONAL SEMICONDUCTOR (NSM; 16.34):
Non-GAAP February-quarter EPS of $0.34, vs. $0.23, is $0.07 ahead of our model due to higher-than-expected gross margin and lower taxes and share count. Sales were 9% lower than November-quarter, owing to weak sales of handset chips, but were in line with our view. Gross margin was flat on better mix and utilization, but operating margin fell as lower sales offset operating cost cuts. We keep our fiscal year 2008 (May) EPS estimate of $1.23, given lower-than-expected May-quarter sales guidance and our 12-month target price of 24. We see better operation efficiency ahead, but think economic headwinds pose a sales risk. -C.Montevirgen
S&P UPGRADES OPINION ON PALM SHARES TO HOLD FROM SELL, ON VALUATION (PALM; 5.94):
Palm shares have fallen 8% thus far in March amid, in our opinion, economic and competitive concerns in the smartphone market. PALM now trades below our price/sales-based 12-month target price of 6. We are keeping our February-quarer sales estimate of $316 million, believing the new Centro will be a large contributor, but we note Palm has negatively pre-announced the last couple of quarters. We contend that Palm's turnaround under new management is far from complete. We expect gross margin to remain pressured and, given high marketing costs, we see operating losses through fiscal year 2009 (May). -T.Rosenbluth
S&P UPGRADES OPINION ON SHARES OF TEEKAY TO BUY FROM HOLD, ON VALUATION (TK; 39.86):
The shares are down over 20% in 2008 as tanker rates have come down from highs of late 2007 and forecasts are declining. TK guides for lower spot rates in the first quarter, leading to a reduction in our 2008 EPS estimate to $2.95 from $3.90. On fleet additions and segment growth, we initiate an 2009 EPS estimate of $3.50. On lower forecasts, we cut our 12-month target price by 11 to 50, blending relative metrics and our NAV calculation of $60. But despite a cautious outlook on tanker markets, we think TK shares discount the anticipated difficult environment, trading 19% below our target price. -M. Kay
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